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Investment strategies for physician stock portfolios


How can physician investors guard against overreacting to large swings in the stock market? Here are strategies to setting asset allocation and rebalancing your portfolio.


For some physician investors, the dark days of March 2009-when the stock market hit bear market lows and fell 56.8% as measured by the S&P 500 from the market highs of 2007-seem like ancient history. With the stock market seemingly reaching new highs every day, an element of euphoria is creeping into discussions about the market.

But as surely as this bull market followed the 2007-2009 bear market, it’s only a matter of time before we’re holding on tightly during the next bear.

When will that happen? One month? Six months? Two years? No one knows for sure, but at our firm we like to say we plan for the certainty of uncertainty. What can physicians do now to weather the next stomach-churning bear market?

Set asset allocation

How can you guard against overreacting to large swings in the stock market? One helpful tool is diversifying your portfolio to include bonds and alternative investments like commodities, gold, real estate and absolute return funds. A properly constructed portfolio is designed to help lessen losses when the stock market drops. How much should you have allocated to stocks, to bonds and to alternatives? That depends on a number of factors.

The three factors that you should consider when allocating your assets are age, risk tolerance, and need for return. The younger you are, the more risk you can afford to take; therefore, you can have a higher percentage allocated to stocks. Your portfolio is smaller, so percentage losses result in less of a decline in dollar terms. Also, you have more years for the portfolio to recover from any declines and grow as your medical career moves forward.

 Your risk tolerance should be measured using a validated risk tolerance tool. If you’re married, both members of the couple should take this tool independently and agree on an overall allocation that accommodates both of their tolerances for risk.

Also, factor in the need for return. A 60-year-old doctor with a $5 million portfolio likely is well on his or her way to comfortably funding retirement. Why should he or she expose their portfolio to a large decline? The return required from their portfolio is not as great as the 60-year-old physician with a $500,000 portfolio who needs growth. Why would the well-funded physician have as aggressive a portfolio as the physician who is playing catch up?

Why does your asset allocation matter? We’re in a five-year bull market. Investors are happy. But memories are short. Could we return to the dark days of March 2009 again? Absolutely.

Next: Organize accounts, examine total portfolio


The stock market cycles through bull and bear markets. A bear market by definition is a drop of 20%. The average loss in the bear markets since 1900 has been 31%. If your overall portfolio has an asset allocation of 80% stocks and the stock market drops 30%, your portfolio might decline 24%. To put that in dollar terms, if your investment portfolio is worth $2 million, a 24% decline would represent a nearly $500,000 loss. Could you tolerate a $500,000 decline in the value of your portfolio without panicking and selling out at the bottom?

Organize accounts, examine total portfolio

Most physicians have numerous investment accounts. For example, a retirement plan offered at your practice, usually a 401(k) or 403(b), brokerage accounts with taxable investments, a rollover independent retirement account from an old practice retirement plan, and more. The problem is that often there is no coordination between the accounts. It doesn’t matter whether a dollar is in an IRA or 401(k) or brokerage account. All accounts comprise your portfolio and need to be coordinated under one investment plan.

Put investment policy in writing

An investment policy statement (IPS) is a written document that either you or your financial planner construct.

It lays out how your portfolio will be allocated. The physical act of putting it in writing and returning to it periodically-particularly when the market is down and you may need reassurance-can help save you from overreacting and selling at the bottom of a bear market.

Your IPS is an important tool and one of the keys to sticking with your proper asset allocation.

Pay attention to asset locations

When implementing the asset allocation, it’s important to pay attention to which of your assets are held in which types of accounts-called asset location.

Generally, bonds and other assets that generate income, such as real estate investment trusts, belong in tax-deferred accounts. Growth investments, such as your stocks, should generally be held preferentially in taxable accounts, because these accounts are subject to lower tax rates.

Rebalance your portfolio

Crafting an investment policy statement and agreeing on a target allocation are good initial steps. But as the market moves up and down, one’s portfolio can get out of balance. Therefore, rebalancing back to target at least once a year makes sense.

It is also recommended to examine every few years whether your circumstances have changed sufficiently to require a change in your target allocation and an update to your IPS. Your age, your net worth and time horizon all change over time. Your target allocation itself should be therefore reexamined, but in a calm and reasoned fashion, rather than in panic during a bear market.

In summary, there are a number of steps that physicians can take to keep from sabotaging their own financial plans during a down market. Follow these five steps and you’ll be less likely to damage your portfolio during the next bear market, and beyond.


Joel Greenwald, MD, CFP, is a financial advisor and founder of Greenwald Wealth Management in St. Louis Park, Minnesota. Send your financial questions to medec@advanstar.com.

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